A 25-year maturity bond with face value of $1,000 makes semiannual coupon paymen

Question

A 25-year maturity bond with face value of $1,000 makes semiannual coupon payments and has a coupon rate of 8%.

a. What is the bond’s yield to maturity if the bond is selling for $1,090? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

Annual yield to maturity %

b. What is the bond’s yield to maturity if the bond is selling for $1,000? (Do not round intermediate calculations.)

Annual yield to maturity %

c. What is the bond’s yield to maturity if the bond is selling for $1,290? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

Annual yield to maturity %

Explanation / Answer

Answer a.

Let semi-annual YTM be i%

1,090 = 40*( 1 - (1/(1+i))^50 ) / i + 1,000/(1+i)^50

i = 3.609%

Annual YTM = 2*3.609% = 7.218%

Answer b.

Let semi-annual YTM be i%

1,000 = 40*( 1 - (1/(1+i))^50 ) / i + 1,000/(1+i)^50

i = 4%

Annual YTM = 2*4% = 8%

Answer c.

Let semi-annual YTM be i%

1,290 = 40*( 1 - (1/(1+i))^50 ) / i + 1,000/(1+i)^50

i = 2.895%

Annual YTM = 2*2.895% = 5.790%

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